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Settlement Negotiations Restart Ahead of BP Oil Spill Trial

Source: NY Times

Posted on 22 Feb 2012

Nearly two years after the oil rig explosion that killed 11 people and spilled millions of barrels of crude oil into the Gulf of Mexico, the myriad plaintiffs suing BP and other companies over the disaster are about to get their day in court...or perhaps not.

With the start of the high-profile trial set for next Monday, and the specter of potential liability that some experts have estimated at $40 billion, BP and other defendants are stepping up negotiations to end the litigation before Judge Carl J. Barbier of Federal District Court picks up his gavel.

“We are ready to settle, if we can do so on fair and reasonable terms,” Robert Dudley, BP’s chief executive, said this month during a conference call about the company’s earnings. “But we are preparing vigorously for trial.”

Charges from hundreds of civil cases from plaintiffs that include the United States government, state and local governments, and individuals and businesses have been consolidated in a federal courtroom here. Along with BP, defendants include Transocean, the owner of the Deepwater Horizon rig; Halliburton, the company that poured the concrete that lined the well; and Cameron International, which made the industry fail-safe device known as a blowout preventer.

Numerous reports have identified errors and problems that contributed to the largest oil spill in United States history, including a faulty concrete job, poor decisions leading up to the blast and the failure of the blowout preventer’s rams and blades to stop the oil.

Several attorneys familiar with the negotiations said settlement talks had intensified in recent weeks. On Friday, Moex Offshore became the first company among the defendants to settle with the government. Moex, which owned 10 percent of the well but did not have a role in operating it, agreed to pay $90 million to federal and state governments. The Department of Justice said the deal included $70 million in civil penalties, the most ever under the 1972 federal Clean Water Act — a record that is likely to be broken before long.

Some of the remaining obstacles to a larger settlement deal are among the defendant companies, rather than between them and the plaintiffs, and concern the amounts that the various parties would contribute toward the negotiated sum.

To many familiar with the case, there is little question that BP would be better off settling. “The incentives are very large for BP to get out,” said Edward F. Sherman, a law professor at Tulane University here.

For one thing, a settlement with the federal government could involve a resolution of criminal charges, which have yet to be filed. Pressure on BP to settle also comes from the company’s continuing desire to drill in the gulf, said David M. Uhlmann, who headed the Justice Department’s environmental crimes section from 2000 to 2007 and is now a professor at the University of Michigan Law School. “Making peace with the government has to be part of any strategy,” he said.

James Roy, one of the leaders of the plaintiffs’ steering committee, would not comment on negotiations except to say, when asked whether he expected the case to end in the courtroom or at the negotiating table: “We believe it’s the courtroom. There’s just too many moving parts.”

If the trial does go forward, Judge Barbier will hear the case without a jury. He has structured the proceedings in three stages. The first phase will involve apportioning the blame for the blast among the defendants. The next phases will deal with efforts to seal the damaged well and questions of environmental damage and health effects related to the cleanup. The litigation could stretch into 2013.

The plaintiffs’ attorneys are expected to argue that the company put schedule and cost ahead of safety, and that the accident was rooted as much in a lax culture of safety at BP as in the acts of any individual on the rig.

BP, which has already paid billions of dollars for cleanup and compensation, will try to avoid a finding of gross negligence that could greatly increase its penalties. Under the Clean Water Act, such a finding could raise the civil penalties from $1,100 per barrel of oil spilled to $4,300 per barrel. The company will argue that it met industry standards and that federal regulators had approved its drilling plan.

The biggest liability risk to the companies comes from the federal government’s case. The Clean Water Act fines alone could be as high as $17.6 billion.

The potential for criminal penalties could send costs still higher, with fines potentially reaching $40 billion, Professor Uhlmann said. He suggested that BP could end up agreeing to pay as much as $20 billion in civil and criminal penalties combined, Transocean as much as $4 billion and Halliburton as much as $2 billion.

The private plaintiffs, by comparison, stand to receive far less, in part because they have been whittled down considerably by the compensation fund that BP created at the request of the Obama administration. Over all, the fund, operated by Kenneth R. Feinberg, a lawyer, has paid $6 billion to about 225,000 individuals and businesses. Of those, 207,000 have signed final agreements to take no further legal action.

It is unclear how many viable cases remain. According to a filing to the judge from Mr. Feinberg last week, 155,000 people have filed in the various suits, but about 57,000 of those who have signed up for the lawsuit have not presented claims to the fund, a step arguably required under the Oil Pollution Act.

More than 14,000 others in the suit have settled their claims through the fund and signed releases stating that they will not sue, which will almost certainly prevent them from being able to get further compensation through the courts. More than 72,000 of the other claims have been denied by the fund or returned as being insufficiently documented or “problematic,” and their chances may not be any better in a court settlement than they were with Mr. Feinberg.

Lawyers for plaintiffs dispute Mr. Feinberg’s accounting and interpretation, and say 116,000 victims of the spill are still eligible.

In recent months, Judge Barbier has issued a flurry of pretrial opinions that have opened the door to punitive damages for some of the plaintiffs. “If things go well, I think that they’re going to be able to prove gross negligence, and the punitive damages are a real possibility,” Professor Sherman said.

But one lawyer, Daniel E. Becnel Jr., who has been moving his clients through the fund’s claims process, argued that “nobody ever gets punitive damages here on virtually anything.” Even if they are awarded, he said, BP is likely to fight punitive damage awards, extending the litigation into the years to come.